TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Income investors can earn worry-free passive income by investing in the shares of fundamentally strong dividend stocks. Further, as dividends and capital gains earned in a TFSA (Tax-Free Savings Account) are not taxed, investors can leverage the TFSA to generate tax-free income.

Against this background, let’s look at top Canadian stocks that can help you make steady passive income in all market conditions. By investing in the shares of these Dividend Aristocrats near the current levels, one can make about $1,200/year tax-free. 

Enbridge 

Enbridge (TSX:ENB) is a top stock for starting a passive income stream. The company’s dividend payment and growth history and low-risk cash flows, as well as its management’s commitment to returning cash to its shareholders, make it a compelling stock for income investors. 

It’s worth highlighting that Enbridge has uninterruptedly paid dividends for nearly seven decades. Moreover, it has increased its dividend for 29 consecutive years at an impressive compound annual growth rate (CAGR) of 10%. Based on its current annualized dividend of $3.66, Enbridge stock offers a compelling yield of 7.6%. 

Enbridge’s highly diversified income sources, benefits from contractual arrangements, power-purchase agreements, and high utilization of its assets position it well to generate resilient distributable cash flows and earnings in the coming years. This will support its future payouts. Further, the company’s ongoing investments in both conventional and renewable energy assets, strategic acquisitions, and multi-billion capital projects position it well to capitalize on energy demand, ensuring continued earnings growth and dividend enhancements.

Thanks to its resilient business model, Enbridge’s management expects to grow its earnings per share (EPS) by 4 to 6% per annum through 2026. Looking beyond 2026, the company’s EPS and DCF per share are forecasted to grow by about 5%. This implies that Enbridge is poised to grow its future dividend in line with the DCF per share. 

Fortis 

Fortis (TSX:FTS) is a super dividend stock. Its stellar dividend payout history, low-risk cash flows, and worry-free yield make shares of this electric utility company a must-have in your TFSA portfolio. Fortis boasts an impressive track record of dividend growth. For instance, Fortis has increased its dividend for 50 consecutive years. Further, it offers visibility over future payouts, supporting my optimistic outlook.

The company owns and operates a regulated utility business that generates predictable cash flows regardless of market conditions. This adds resilience to its business and enables Fortis to consistently enhance its shareholders’ returns via increased dividend distributions. Thanks to its defensive business model and durable earnings, Fortis stock remains relatively less volatile despite large market swings. Thus, adding Fortis stock to your TFSA portfolio will add stability. 

Currently, Fortis pays a quarterly dividend of $0.59, translating to a dividend yield of over 4.4%. The company’s focus on expanding its rate base will likely drive its earnings and dividend payouts. This utility company expects its rate base to grow at a CAGR of 6.3% through 2028. During the same period, Fortis’ dividend is forecasted to increase at a CAGR of 4 to 6%. Overall, Fortis is a top stock for earning worry-free yields. 

Bottom line

Enbridge and Fortis’s dividend-growth history, well-protected yield, growing earnings base, and sustainable payout ratio make them exceptional stocks to earn worry-free passive income. By investing $10k in each of these stocks, investors can earn a tax-free passive income of about $300/quarter or $1,200/year.